SINGAPORE EXCHANGE’S REDUCTION IN BOARD LOT SIZE: CAN A LOWER MINIMUM MONETARY AMOUNT TO INVEST IN SECURITIES IMPROVE LIQUIDITY?

Abstract

We examine whether the board lot size reduction imposed by the Singapore Exchange (“SGX”) improves the trading liquidity of stocks listed on it. We find that the three dimensions of liquidity are highly correlated, and the reduction event broadly increases liquidity for the SGX as a whole. Higher priced stocks see more significant increase in liquidity than lower priced stocks. The trading liquidity of larger firms also increases more significantly than firms with smaller market capitalisations, but the effect of firm size cannot be isolated from price because most large firms listed on the SGX have high stock prices. These results suggest that a smaller minimum monetary amount to trade or invest in stocks increases trading activity, especially for higher priced stocks which have single board lots beyond the means of smaller investors prior to the board lot size reduction.